Ron:
Much of the history you quote is correct but I don't think it's put in the proper perspective. Furthermore, you entirely ignore the fact that all fiat currencies throughout history have tanked in value to ZERO.
Again, I use ***'s below for my replies. Yours are in << >>'s.
<<The general examples I have found relate to periods of conflict when gov'ts were forced to deficit spend to finance, or periods of excess production of gold/silver from conquests.>>
*** Let's distinguish between supply and production, shall we? The contention that gold and silver fluctuate in value because of fluctuations in mine production is valid but not that weighty. Throughout history, for instance, gold mine production has fluctuated in the 1-3% of above ground stock range. Recently the figure is 1.25%.
Now let's talk about supply. Supply can be obtained from above ground stock or from mine production. In the hackneyed example of 16th century Spanish conquest, gold/silver was not "produced" from conquests, it was supplied. To use this example as one which diminishes the value of gold is to quote history in a very superficial and biased manner.
Let me use an example to illustrate the point:
Let's say the US sent its troops everywhere around the globe on a mission - to clonk each and every foreigner on the head and take their greenbacks. OK, so these troops return and spend their booty back home. What would happen? Eventually there'd be a raging greenback inflation and prices of goods would shoot up, right?
Here's the kicker: would you use this as an argument that greenbacks were problematical and can be inflationary?
If you DO, then you must acknowledge that any kind of money is vulnerable to state aggression, to confiscation of this kind.
If you DON'T, then you have a lot of explaining to do.
I bring up this seemingly outlandish example because it actually illustrates the point that it is easy to swallow seemingly plausible examples brought up by economists and authors to discredit honest money. In this case, it isn't so much an example of the quality of money being undermined,
THE EXAMPLE IS ONE OF STATE AGGRESSION CAUSING A GROSS IMBALANCE OF WEALTH -
NAMELY AN EVENTUAL EXCHANGE OF REAL GOODS FROM THOSE WHO WEREN'T CONQUISTIDORS (WHO HAPPENED TO BE HOLDING LOTS OF PLUNDERED NEW WORLD GOLD) TO THOSE WHO WERE!
THIS IS WHAT THE 16th CENTURY "INFLATION" WAS ALL ABOUT!
Do you think the Aztecs cared much about the raging inflation of 16th century Europe? To bring up this argument as Greider and others do is to do history a gross injustice. I'd keep this example in mind - it illustrates another oft-quoted notion - that history is written by the victors. I'd like to add that history is often contorted to justify the statist/interventionalist/power structure status quo. ***
<< There have been periods where silver actually has gained against gold and vice-versa, depending on the amount that was available.>>
*** Yes, and that bolsters the argument that only 1 metal is desirable for the standard. Introducing a bimetallic standard only increases the fluctuation of money value, because now there are two mine supply fluctuations to deal with. Eventually, any bi-money standard will suffer from Gresham's Law - bad money chases out good. ***
<< The one example that I cited previously was the inflation during the civil war when the US gov't (north..:0) borrowed $2.6 Billion and issued $500 million in Fiat money in order to finance the war.
Much of this money went to N.Eastern industrialists and financiers who, after the war, demanded that the US return to the pre-war exchange rate for gold ($20/ounce) rather than taking into account the now inflated currency and the economic growth that had resulted from manufacturing the necessary material of war.
The result was "the great deflation" which lasted 30 years, and basically resulted in the "rich getting richer" (as their already accumulated wealth increased in purchasing power as prices fell), and the "poor getting poorer" as the economy contracted and people were laid off enmasse or paid severly depressed wage scales. This is an example of where hard money "discipline" was forced upon the nation without taking into account the long-term repercussion of forcing the nation to again back dollars with gold, especially at a pre-inflationary exchange rate. >>
*** Now you're getting into an example which highlights much of the misunderstanding about gold, deflation, production, depressions, etc. The problem doesn't lie with the discipline applied to the overextended greenback money supply - the problem clearly lies with the use of greenbacks. That these problems only show up years later - as the Panic of 1873, tends to obscure their origin. But those that read history and understand the underlying economics, also know that it's the unjustified extension of credit, particularly without an adequate backup of assets under a fiat system, which in large part produces inflation and all its consequent ills. ***
<< I think this is a good example to compare the current situation to. If goldbugs were successful in forcing their discipline upon the dollar, the result would be that the economy would have to substantially contract, or the supply of gold drastically expand, in order for the available amount of gold to properly back up money supply in circulation. >>
*** Well, you're right, IMHO that imposing a gold standard would be harsh. My contention, however, is that the economy will contract anyway, that a fiat system is like a runaway train heading for a wreck. As a practical matter, until the economic conflagration occurs, no one in power would take this discussion of a gold standard seriously. It will only be in the fiery aftermath that such notions might be entertained, as they are now in Russia, Europe and in Asia. ***
<< The only other alternative would be that the price of gold be raised to a price level where it is divided into current money supply nad the restrictions that would follow where money supply could only grow as fast as gold is mined and stored. >>
*** Great idea! Let's do it! ***
<<To suggest that there is some happy medium where CB's should retain more gold as reserves as backing for gold is nothing more than smoke and mirrors unless there is the ability to exchange notes for gold upon demand.>>
*** Agreed. Like I said before there has to be full electronic and paper convertibility initially and as a convenience later. ***
<< Forcing nations to buy gold would force the spending of national resources, as well as available capital and tying it up in a non-interest bearing commodity. >>
*** You know, I'm glad you brought this up because Keynes brought it up, but I doubt he could anticipate the costs of a fiat currency. Let's compare relative costs today, shall we?
Annual Cost of mining gold around the world: About 1500 tons at an estimated cost average of $300/ounce costs about $15 Billion US dollars.
Annual Cost of paying off the Banks in NYC to trade in US government bonds, thus supplying the world with fiat money:
about $50 Billion US dollars.
Hmmmmm... $15 B vs. $50 B? I thought you were making an argument AGAINST a GOLD STANDARD? ***
<< It would in essence be a scheme to "prop" up a commodity that competes directly with the global reserve currencies, while not really possessing the true rights and obligations of a fully gold-backed currency.
So how do you propose we revert back to a gold-backed currency? Can it be done without destroying the lives of Billions of people worlwide and not enriching those who are already wealthey and stand to increase that wealth (with regard to purchasing power) in any deflation that would have to eventually accompany a currency pegged to gold?? >>
*** No transition to an honest standard would be painless, but the pain and theft of wealth has already occurred and is caused by the fiat economy. Let's lay blame where it is deserved. As I said above, a gold standard will probably only come about when people are ready for it - that is after the funeral pyre of the fiat economy collapse. Then, only after circumstances are evident, will it be time to implement a strategy for a gold standard. ***
Bob |
